Healthcare Trust of America's $80 Million Non-Internalization Fee
Healthcare Trust of America (HTA) closed its offering period on February 28, 2011.  A mere two days after the offering period closed, on March 2, 2011, HTA filed an 8-K that announced major changes to its original 2006 Incentive Plan for executives and directors.  HTA's board increased by five times the number of shares that can be granted to executives and board members from 2,000,000 shares to 10,000,000 shares.  At $10 per share the increase is worth $80,000,000.  The 8-K states:

The plan is designed to provide maximum flexibility to our Board and Compensation Committee in designing individual awards. 

Cha-Ching!  I take this as HTA's board's intention to pay themselves and HTA's executives as much as possible.  It looks to me like any stock awards under the plan have favorable vesting for HTA's board members and executives, as detailed in the 8-K filing:

Unless otherwise provided in an award certificate or any special plan document governing an award, upon the occurrence of a change in control of the company (as defined in the Amended and Restated 2006 Plan) in which awards are not assumed by the surviving entity or otherwise equitably converted or substituted in connection with the change in control in a manner approved by the Compensation Committee or our Board: (i) all outstanding options and stock appreciation rights will become fully vested and exercisable; (ii) all time-based vesting restrictions on outstanding awards will lapse as of the date of termination; and (iii) the payout level under outstanding performance-based awards will be determined and deemed to have been earned as of the effective date of the change in control based upon an assumed achievement of all relevant performance goals at the "target" level, and the awards will payout on a pro rata basis, based on the time within the performance period that has elapsed prior to the change in control. With respect to awards assumed by the surviving entity or otherwise equitably converted or substituted in connection with a change in control, if within one year after the effective date of the change in control, a participant’s employment is terminated without cause or the participant resigns for good reason (as such terms are defined in the Amended and Restated 2006 Plan), then: (i) all of that participant’s outstanding options and stock appreciation rights will become fully vested and exercisable; (ii) all time-based vesting restrictions on that participant’s outstanding awards will lapse as of the date of termination; and (iii) the payout level under all of that participant’s performance-based awards that were outstanding immediately prior to effective time of the change in control will be determined and deemed to have been earned as of the date of termination based upon an assumed achievement of all relevant performance goals at the "target" level, and the awards will payout on a pro rata basis, based on the time within the performance period that has elapsed prior to the date of termination.

HTA's board has not yet awarded the $80 million in new stock, it has just increased the amount of stock it can award.  In reading the above legalese, HTA's board has seen all the recent health care mergers and has positioned the board and executives for a big payday in the event of an HTA merger or acquisition.

The HTA message board at ReitWrecks has a serious take-down of the increase in shares available under the Incentive Plan.  I agree with ReitWrecks that the large increase of stock in the Incentive Plan is HTA's attempt to pay itself the internalization fee it waived in 2009 when it became self managed.  Here is what HTA said one year ago in its 2009 annual report stressing the benefits to investors of its plan to become self-managed:

No Internalization Fees.  Unlike many other non-listed REITs that internalize or pay to acquire various management functions and personnel, such as advisory and asset management functions, from their sponsor or advisor prior to listing on a national securities exchange for substantial fees, we will not be required to pay such fees under self-management.  We believe that by not paying such fees, as well as by operating more cost-effectively under self-management, we will save a substantial amount of money for the benefit of our stockholders.  To the extent that our management and board of directors determine that utilizing third party service providers for certain services is more cost effective that performing such services internally, we will pay for these services based on negotiated terms and conditions consistent with the current marketplace for such services on an as-needed basis.

I guess it seemed like a good (marketing) idea at the time to forego the internalization fees.  HTA's executives seem to have figured a way to recoup the big internalization payday that was waived less than two years ago.  HTA's board conveniently waited until after it finished its capital raising period to disclose the changed Incentive Plan.  An internalization would have required a shareholder approval, and however distasteful the internalization price tag, at least it would have been put to a shareholder vote.  This new, potential $80 million change to the Incentive Plan was not put to an investor vote.  HTA's board unilaterally made the decision to boost the Incentive Plan.  Investors had no say in this enormous potential payday to management.  HTA's ploy is a sucker punch to investors and the broker / dealers that sold HTA.

The 8-K ends ominously for investors:

Based on their ongoing review of our current compensation structure, our Compensation Committee and Board of Directors are actively involved in the process of assessing various changes to our compensation programs, which include without limitation, the review of key employment agreements and the discussion and negotiation of changes to such agreements. It is anticipated that changes to our compensation programs will be implemented in the future, consistent with, among other things (1) our current strategic initiatives and achievements and (2) the actual level of employee performance successfully undertaken to date and the expected level of performance in the future in order to achieve these initiatives.

HTA's board is giving notice that it's set to bestow on HTA's management another big payday - including salary boosts, bonuses and stock awards under the Incentive Plan - just like it did last year.  I noted the egregious increase in HTA management pay here.  Sucker punch number two should be announced in HTA's 10-K, which should be released within the next two weeks.

HTA is owned by the shareholders, not HTA executives or the board.  If HTA has any independent board members they need to earn their outsized pay and look after investors' interests.  Broker / dealers, HTA is mocking you, and you should not stand for it.